The non-dom exodus: where should they go?

A recent study by a UK wealth management firm has backed up what we all already suspected: 46% of non-doms say they are considering leaving the UK. This is up 9% last year, despite 10% having already left since the same study in 2016. The two leading causes of this sentiment are upcoming changes to their tax status, which will leave many of them severely out of pocket, and the impact of Brexit.

These non-doms have their eye on quite a diverse mix of destinations, many of which will be determined by their historic ties to other countries. For some, however, they will be looking for an entirely new place to rest their head, and their assets. The leading jurisdictions amongst those surveyed by the study were Switzerland, the USA, and Monaco, none of which come as a surprise and all of which are, or can be, low tax jurisdictions.

There are a handful of other jurisdictions that they might wish to consider, though, based on their priorities.

UK Non-doms concerned about taxes

For many, living the non-dom life in the UK is about low taxes and EU membership, but also something more than that. Many enjoy the British way of life as well, and would be keen to keep a similar lifestyle if the tax regime were reasonable. For them, the obvious choice would be the British Crown Dependencies and Overseas Territories. That’s still a lot of choice, though: we’re talking about seventeen jurisdictions scattered across the globe. Several can be ruled out quickly: not many non-doms would enjoy the move to Antarctica or several of the other territories which have fewer than 10,000 residents. The Caribbean territories are, sadly, becoming less attractive as the region’s hurricane activity becomes more severe and frequent, so they aren’t likely to come top of the list. This leaves us with a shortlist of Gibraltar, Guernsey, Jersey, and the Isle of Man: these four jurisdictions all offer competitive tax regimes, a high standard of living, and a very British way of life.

From a social, political, and lifestyle perspective, Gibraltar offers the best weather but perhaps the least quintessentially British experience, due to the strong Spanish influence there. It also arguably offers the least long-term security, with Spanish sabre-rattling reaching a crescendo as Brexit negotiations continue. Jersey and Guernsey offer a comfortable middle ground; their weather is on the Mediterranean side of British and they have strong ties with London. All three of the above are arguably overpopulated, however, with high prices and limited space available for anyone looking for a new home. The Isle of Man is perhaps the more comfortable option for non-doms used to living outside of the big cities: it has some pleasant urban centres but, as a larger island, also has a lot of open countryside akin to the more picturesque parts of North-west England.

From a fiscal perspective, each of the jurisdictions has something slightly different to offer:

Gibraltar: Personal income tax for non-doms in Gibraltar is charged on an income accruing or deriving from Gibraltar basis. Those individuals also have the choice of being taxed on an Allowance Based system, which is similar to that in the UK, or under a Gross Income Based System. Under the Allowance system the first £4,000 is charged at a rate of 14%, the next £16,000 is charged at a rate of 17% and then the balance is at a rate of 39%. Conversely, under the Gross Income Based system the first £10,000 is charged at a rate of 6%, the next £7,000 at a rate of 20% and the balance at 20%. If you have a personal income of over £25,000 a year there is a banding system with tax rates from 5-28%. Gibraltar does not have any wealth taxes, capital gains tax, or VAT. For those who are considering moving or establishing a corporate entity, there is a corporate tax rate of 10%, but only on income accruing or derived in Gibraltar. However, there are no double tax treaties in place meaning that those who have assets or income deriving elsewhere, there is potential for tax to be charged in both jurisdictions.

Jersey and Guernsey: In Guernsey there is no capital gains tax, inheritance tax or VAT. Those who are deemed resident in Guernsey are either taxed on their on their worldwide income at the rate of 20% (after allowances) or, alternatively, on Guernsey-sourced income and can opt to pay a set charge of £30,000 in respect of non-Guernsey source income. Additionally, non-Guernsey based income and investment income is capped up to the sum of £220,000 and corporation tax is zero rated unless they undertake banking activities where there is a tax of 10%. Guernsey has approximately 13 full double tax treaties in place and a further 13 partial double taxation agreements. Similarly, in Jersey the personal income tax rate is 20% and there is an option for individuals to register with a High Value Residency status, where you contribute a minimum annual amount of £125,000. Subequently, indiviauls will then pay 20% on the first £625,000 of all income and then a further 1% on income above that level. Corporate entities in Jersey have a zero rate of corporatation tax, unless they are undertaking regulatory financial services or generating property income in Jersey. There is no capital gains tax, inheritance tax or VAT. Jersey has approximately ten fully signed double taxation agreements in place and 12 partial double taxation agreements.

The Isle of Man: The Isle of Man is completely separate from the United Kingdom and therefore also has complete independence in relation to its taxation system. The Island enjoys no capital gains tax, inheritance tax, wealth tax, or stamp duty and the corporation tax is charged at a rate of 0% (unless the company is undertaking banking or retail activity or investing in Manx property). The personal income tax rates are up to a maximum rate of 20% of worldwide income, with a tax cap of £125,000 per annum. For VAT purposes, the Island forms part of the EU and applies the same VAT rate as the UK (20%). The Isle of Man has also entered into approximately 23 double taxation agreements, therefore there may be relief on any income suffering tax in more than one jurisdiction.

UK Non-doms concerned about Brexit

Many non-doms are less concerned about the British way of life and more about using Britain as a suitable launch-pad for working in the European Union. For these people, Brexit is a huge concern and many of the more tax-competitive European jurisdictions, such as Monaco, Luxembourg, and Switzerland, just won’t cut the mustard. They need an EU member state, because that’s what they are set to lose.

Here, the two obvious choices are Cyprus and Malta. Both Mediterranean nations offer a good quality of life (not to mention plenty of sunshine) in an EU member state, good transport links, and relatively low domestic taxes. Malta has an advantage in two key respects, though: firstly it is English speaking (compared to Greek and Turkish in Cyprus), and secondly Malta has had a much stronger economic outlook for some time. Cyprus’ reputation as a financial hub was hit hard by the extreme steps taken during its 2012-2013 financial crisis, in which a bank deposit levy was instituted on local savings.

Fiscally speaking, the two jurisdictions offer similar advantages:

Malta: Non-doms living in Malta are able to benefit from the remittance basis of tax, whereby those who become Maltese resident will only be taxed on income and capital gains that are sourced in Malta or any funds that are foreign income and remitted into Malta. In practice, this can be extremely advantageous, especially where income will continue to be generated in foreign jurisdictions as they can be received and kept in foreign bank accounts with no Maltese tax charges being applied. Additionally, there is no inheritance tax, or wealth taxes and they have various schemes to attract those wishing to relocate. A company registered in Malta will be subject to a corporation tax at the standard rate of 35%, however, there is a refund mechanism in place, so that once the remaining dividends have been paid to a non-resident shareholder then 30% of the tax paid can be refunded. Therefore, in some cases there is an effective corporate tax rate of 5%.

Cyprus: Unlike Malta, those who are deemed resident in Cyprus will be charged income tax on their worldwide income. The personal income tax is charged on a progressive rate and has a nil rate for funds up to €19,500, it then goes up in stages up to a maximum rate of 35% for income over €60,000. There is also corporation tax at a rate of 12.5% which is deemed one of the lowest rates in the EU (aside from those mentioned above in Isle of Man, Jersey, and Guernsey).

Interestingly, both of these jurisdictions offer full citizenship by investment options. This won’t suit every non-dom, but for some it could be very attractive. We’ve looked at which of the two offers the stronger citizenship scheme here, and have also produced a complete guide to EU citizenship by investment.

Low-tax alternatives to Switzerland and Monaco

Based on the different priorities tackled above, there are several jurisdictions that might be worthy of consideration by the many UK non-doms looking to relocate abroad. At the top of the list are the Isle of Man and Malta, although for very different reasons, with the Channel Islands not far behind.

A lot of assistance is available for those looking to move. All of these jurisdictions have sophisticated financial and legal service markets that will make the transition of wealth relatively easy, as well as government-backed relocation programmes designed to attract inwards investment. If you would like further information on this topic, we would be happy to assist either directly or through a relevant introduction, so please do get in touch.

Alex Fray - Group CEO

Alex leads of all Boston Group’s operations. He is responsible for enabling group strategy, maintaining strong governance, financial stewardship, operations and infrastructure across the group.

Boston Limited is licensed by the Isle of Man Financial Services Authority.
Boston Trust Limited is licensed by the Malta Financial Services Authority to provide trust and fiduciary services in terms of the Trusts and Trustees Act.